Euro Zone

Serbia Turns Back to Milosevic-Era Leaders

Serbian Prime Minister Ivica Dacic presents the plan for his new government on July 26 in Belgrade

Think the Greek economy is a mess? Check out Serbia, where the unemployment rate is 25.5 percent, inflation is nearing double digits, and only 0.5 percent of the population, just 40,000 workers, earn more than $1,254 a month. The Serbs are so desperate that they’ve turned power over to two ex-allies of former President Slobodan Milosevic, who dragged the fractured Balkan nation into a crippling ethnic war in the 1990s.

Ivica Dacic, Milosevic’s wartime spokesman, became prime minister in July, and Tomislav Nikolic, who served as deputy prime minister of the former Yugoslavia toward the end of Milosevic’s regime, was sworn in as president in June. Both men, who were barred from entering the European Union during the war crimes tribunal of Milosevic at the Hague, have pledged to fix the economy and lead Serbia into the EU. “One of the risks is that people turn to more nationalistic behavior if the economy is deteriorating,” says Svetlana Logar, research director at Ipsos Strategic Marketing in Belgrade. “Democracy has always been very confusing for Serbians, and they’re not aware that democracy is a way to a stronger economy and jobs.”

Dacic’s government has already placed Serbia’s central bank under parliamentary control for the first time since the country’s transition to democracy in 2000, drawing objections from the EU and the International Monetary Fund that the central bank is being politicized. The move pushed Serbia’s dinar—already Europe’s worst-performing currency this year after dropping 12 percent against the U.S. dollar—to a record low. The Belgrade Stock Exchange’s main index is off 10.5 percent so far this year. On Aug. 7 the government sold debt maturing in 490 days at a yield of 14.9 percent, more than double what Spain pays to borrow for 10 years.

Nikolic and Dacic’s ultimate success hinges on their ability to steer Serbia into the EU. Its candidacy for membership is official after it fulfilled a series of conditions, including the capture and transfer to the Hague of war crimes suspects from the civil wars that accompanied the breakup of the former Yugoslavia. Serbia now must improve ties with Kosovo, a much tougher challenge. NATO bombing attacks in 1999 forced Serbia to relinquish control of Kosovo, which was then a part of Serbia. Kosovo declared independence in 2008 and is recognized by 22 of the 27 EU nations. Serbia would need to amend its constitution for any Serbian leader to recognize Kosovo as a separate nation, tricky since many Serbs still regard it as the historic heartland of their nation.

The same leaders who backed wars over Kosovo will have to resolve the territorial dispute in order to secure Serbia’s place inside the EU. “Many are still not convinced that they are genuinely pro-European,” says Sonja Licht, president of the Belgrade Fund for Political Excellence and a former dissident during the Communist era, at a riverside café in the shadow of the abandoned Hotel Jugoslavija, which was hit by NATO bombs in 1999. “I’m too old not to remember the role of these people.”